Preferred stocks pay a guaranteed fixed dividend until they are called or mature, so they are purely a play on interest rates. As a consequence the price only varies for two reasons. First, the interest rates available elsewhere change and second the soundness of the company becomes questioned so the chances of their defaulting on either the dividend or the redemption increases.

Preferred stocks, even in grade A firms, tend to pay a fairly high rate of interest because of their lack of flexibility. Now to the example:

The stock symbol GED belongs to a preferred issued by General Electric. There is no firm in the world with a better credit rating than GE, so price changes reflect interest rate expectations. GED traded above the redemption price today for the first time since late 2005. This means that traders are now expecting interest rates to stay low.

The second barometer is GPM which was issued by General Motors. It is now up by about 20% from its low of a two month's ago. This despite GM's latest miserable quarterly report. In other words traders think that the worst in the industrial sector is drawing to a close.

When the "conventional wisdom" all sounds the same, it is time to look elsewhere for hints about what is to come. I'm not suggesting diving into the stock market, but those with money to invest and a longish horizon for their investments might start to look for good deals.

Policies not Politics
---- Daily Landscape